Do This If You Want to Retire by 50

By Markets Fool.com

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Source: Flickr user Stephen Depolo

Early retirement is a dream of millions of Americans. But while early retirement is ambitious enough, retiring by the age of 50 is on a whole other level.

How does someone make this happen? We asked four of our retirement experts what it takes to retire early, and here's what they had to say:

Matt Frankel: If you want to retire early, you'll obviously need to save a more substantial portion of your income than someone who plans to retire at a normal retirement age. Not only do you have less time to build up savings, but those savings will need to last much longer.

One way to do this is to increase your 401(k) contributions at work (or contribute to a SEP or SIMPLE IRA if you're self-employed). The majority of workers contribute the percentage of their salary that their employer is willing to match. But it's important to keep in mind that you can actually contribute much more than that.

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For the 2015 tax year, the IRS allows up to $18,000 in elective deferrals to your 401(k), which doesn't include your employer match. The limit is even higher if you're age 50 and older. As a result, if you plan to retire before 50, you'll want to get as close to the $18,000 limit as possible.

Let's assume, for instance, that you make $80,000 per year and that your employer matches the first 5% of your contribution (or $4,000). By simply contributing what your employer is willing to match, your account could grow to about $367,000 in 20 years, assuming 8% annual investment gains. However, if you boost your elective contributions to $10,000 per year, your account would be worth about $640,000 under the same assumptions. And if you contributed the $18,000 maximum, your account could grow to more than $1 million in just 20 years.

So, if you plan to retire early, the more you save (and invest) now, the easier it will be.

Dan Dzombak: If you want to retire by 50, the best way is to earn more money so you can save more.

While you can likely only save between 10%-20% of your income, you can grow your income by multiples of that over time by taking advantage of opportunities to make more money. There are many ways to do this.

One is as a simple as asking for and deserving a raise. With the unemployment rate low and going lower, bargaining power is slowly shifting back to employees which should help the group as a whole get pay increases. The Society for Human Resource Management expects wages to rise 3% in 2015, though it could be faster depending on if the economy picks up speed.

A better way is to start a side business and get a second income stream besides your regular job. Besides the opportunity for extra income, a side business will keep you active and learning new things, particularly business skills, which are applicable to the other parts of your life as well as your primary job.

With the Internet and advances in communication technology the past 10 years it has never been easier to make a second stream of income. Some examples include:

  • Everyone has skills that others would gladly pay you for. Try freelancing on the side.
  • Start an online store through your own site, eBay, Etsy, Amazon, etc.
  • Write for a website or magazine that will pay you to share your knowledge with others.

The ideal, though, is to create a product or some other form of intellectual property that you can create once and then continue to collect money from it for years to come. This is ideal as then you will continue to be bringing in money after you have retired and can live off the income stream as well as your other savings.

Jason Hall: Maximizing how much you save and invest is necessary if you want to retire by 50, but the most important thing you'll probably need to do is hit 50 with as low of a cost of living as possible. For starters, this means paying off debt, not carrying balances on your credit cards that lead to paying interest, and not leasing a new car every two or three years.

It might also mean that some of the things you become accustomed to before retirement, like having a housekeeper every week, or a pool service, go away. After all, you'll be retired -- you can spare a few hours every week to take on these chores if you really want to get out of the rat race. But don't stop there. Look at how much you pay for your mobile phone, Internet, and TV. These monthly costs can be thousands of dollars per year. Retiring at 50 might mean making do with less of these things.

Another thing you might need to do to retire at 50? Move. Depending on where you live, moving to a state with lower property and income tax rates alone could reduce your annual expenses by thousands of dollars. It could also allow you to cash in the value of your current home if you relocate somewhere with cheaper housing, further adding to your nest egg.

Dan Caplinger: The rule of thumb that most advisors recommend to retirement savers is to aim to save between 10% and 15% of your annual salary. That way, you'll be on track with reasonable market returns to have a big enough nest egg when you retire that your money will outlive you.

But there's a movement toward putting aside a much larger portion of your pay. So-called "hypersavers" aim to save half of their pay or more, figuring that if they can save as much as they spend, every year that they work means a year's worth of expenses saved for retirement -- or even more, once you incorporate investment returns into the equation.

Obviously, a budget that takes half your money off the top every month won't leave you a lot of room for anything beyond the bare necessities, unless you have an extremely high-paying job without any accompanying financial obligations. Even throwaway-expenses that most people take for granted become potential roadblocks toward meeting your savings goals. But the exercise builds up financial discipline, which becomes even more important when you actually do retire at 50 and have to make your nest egg last the rest of your life. Hypersaving isn't for everyone, but if you really want to cut 15 years or more off your career, it's the best way to ensure that you can actually reach your goals.

The article Do This If You Want to Retire by 50 originally appeared on Fool.com.

Dan Caplinger has no position in any stocks mentioned. Dan Dzombak has no position in any stocks mentioned. Jason Hall owns shares of Amazon.com. Matthew Frankel owns shares of eBay. The Motley Fool recommends Amazon.com and eBay. The Motley Fool owns shares of Amazon.com and eBay. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.